understanding mortgage insurance

Understanding mortgage insurance

For the majority of Australians, there is a clear understanding of the importance of insuring our assets to protect us in the event of an unexpected disaster. Whether it is our home, our health, our car or our holiday, most of us choose to pay a little bit each year rather than facing the possibility of a major expense in the future. However, in our dealings with property buyers and sellers over the years it has become clear that many people don’t consider insuring our debts as well as our assets…particularly protecting our biggest debt with mortgage insurance.

For those that are unfamiliar with the concept of mortgage insurance, there are two distinct types of this form of insurance, and it is important to understand the difference if you want to be fully covered.

When people buy a home, particularly their first home, they are sometimes required to take out Lenders Mortgage Insurance (LMI). This form of insurance is usually required by lending institutions when borrowers have less than a 20% deposit. The key thing to understand is that this type of cover only protects the lender, not the borrower.

The second category of mortgage insurance is often referred to as Mortgage Repayment Insurance and is designed to protect you, rather than the lender. Generally speaking, this type of insurance comes in two forms, either “loan protection insurance” or “repayment protection insurance”.

Loan protection is generally designed to pay out a lump sum in the event of major illness or worse. You can also cover loss of employment in some policies. Benefits usually range from a complete payout in the case of a death to part-payments for specified events such as illness.

In contrast, repayment protection is designed to maintain your mortgage repayments if you are unable to meet them for a specified period, usually as a result of an accident or illness.

Obviously, we’re not financial advisors so we’re not here to give you specific advice about your insurance needs. However, we do care about our clients, which is why we would always recommend that that you look at your own circumstances and consider how well you are covered if something disastrous happened. If you’re not sure, why not talk to an independent advisor to make sure you’re protected.

Of course, if you do need any advice or assistance in understanding any particular aspect of the property market, along with those you’ll find in our FREE book, Fatal Real Estate Traps Exposed, you can give us a call at Ian Reid’s Vendor Advocates on 9430 0000.

Leave a comment

Your email address will not be published. Required fields are marked *